The Crisis of Currency Rates in Iran

Fluctuations of the Iranian Dollar may be too Difficult to Control.

An Iranian woman walks past a mural on the wall of the former US embassy in the Iranian capital Tehran on May 8, 2018. (Getty Images)

Fatemeh Sobhi

The Iranian new year was labelled by Ayatollah Khameniyi, the Supreme Leader of Iran, the year of ‘support for domestic products’, but started with a sudden soar in currency exchange rates. The Dollar prices, being the reference currency in Iran till April 2018, were experiencing a quiet and untroubled period in the first round of Ayatollah Hasan Rouhani’s presidency, the reformist president of Iran since May 2013. However, in the second round, especially in January and February 2018 it experienced a sudden rise, which reached its peak in the final days of March 2018. The reasons for this increase in the currency rates has been manifold, but the major causes could be summarized as: the increased demand for foreign currency due to increased foreign seasonal trips in December and January, the increase in the global rates of US Dollar price in November 2016, and the intensification of the political status of Iran as a result of the threats by the US.

The fluctuations in the currency rates in 2017 and 2018 have caused instabilities in many other national affairs. The price of Dollar raised from 44000 IRR in November 2017 to 63000 IRR in May 2018. According to Radio Farda, the price of USD reached its peak on 7th April 2018 and increased 9000 IRR in only 3 days. Because of the lack of price-controlling policies by the government, the sudden rise of the USD rates caused inflations in the prices of all kinds of products and services, including transportation and accommodation expenses, which in effect increased the pressure on Iranian families with lesser incomes. As a result, the country witnessed various waves of spontaneous protests against the government in specific, and the regime, in general, since January 2018. Several riots were conducted in Iran’s large cities like Khorasan, Khuzestan, Isfahan, Tehran, and many other large cities with the motto of ‘no to high prices’.

Although these protests were silenced temporarily, but the continuing corruption and inflation in the final days of the Shamsi calendar (March 2018), resulted in many upcoming uproars in the Iranian new year. The riots mainly developed in protest to government’s failure to control financial corruption, embezzlement, unemployment, inflation, high prices, etc. Although they were mostly quenched immediately, but government’s resuming incompetence in managing financial problems is still fueling random riots in different cities.

The fluctuations in the currency rates in 2017 and 2018 have caused instabilities in many other national affairs.

However, the problem of the increasing dollar rates and the depreciating national currency are not limited to the presidency of Hasan Rouhani only. In fact, based on a report from Eghtesad Online, an online economic magazine, the only stable periods in the history of Iran after the 1979 revolution with regard to currency rates, occurred at the time of the presidency of Ayatollah Aliakbar Hashemi Rafsanjani in March 1993 and Seyyed Mohammad Khatami in March 2002. However, the stability was shattered by disagreements on having fix currency rates.

The opposers to a fixed currency rate claimed that a fixed rate in a country with an increasing inflation hurts national production and persuades the importing of goods. Since local products are not comparable in terms of quality to their foreign counterparts, people would prefer the imported goods to the locally produced ones. Mohsen Ehtesham, the Head of Birjand’s Industrial and Commerce Chamber and one of the prominent exporters of saffron believes that a USD rate of less than 40000 IRR is detrimental to the local production, because when the final cost of imported goods is far less than those made locally, any competition is automatically cancelled out.

Iranian dealers monitor the stock market at the stock exchange in the capital Tehran on May 8, 2018. (Getty Images)

Nevertheless, to reverse the demands for importing foreign goods, the current Persian year was titled as ‘the year of supporting domestic production’. The act of naming each year by the Supreme Leader in Iran, which has been popular since 1999, in fact, shows the government’s dominant political strategy within that year. As a result, in practice, the government limited the flow of foreign products into the country by shutting down importing borders like Baneh, in West Iran. It also banned the purchase of any foreign currency by means other than the official banks and exchanges, and limited the amount of currency an individual could possess to 10 thousand Euros only.

Regardless of the intended policies, the worries about the rise in the currency rates have intensified mostly because of its concomitance with the deterioration of the region’s political status.

Although this decision might seem logical, but it is not effectual in practice because many of the products labelled as being made in Iran are in fact assemblies of imported parts. Even the machinery used in such large companies as Iran Khodro and Saipa have been imported from foreign countries. Therefore, naming this year in favour of domestic production raises the confusion whether the intended products were merely limited to certain products, like agricultural ones; or the whole range of products already in use in Iran? Moreover, one cannot cease to doubt whether this policy has been taken as a measure to effectively reduce imports and improve the quality of locally produced goods or it has merely been an excuse to restrict trades to specific routes owned by a few elites?

Regardless of the intended policies, the worries about the rise in the currency rates have intensified mostly because of its concomitance with the deterioration of the region’s political status. The US-Britain-France attack on Syria on 13th April 2018, as well as the rumours of the US’s decertification of Iran’s nuclear deal by 12th May and possible future conflicts between Iran, the US and Israel have added up to Iran’s domestic conflicts. As a result, many Iranians feeling anxious about the country’s future and their own investments, have decided to withdraw their money from banks and make investments by buying physical foreign currency instead.

Therefore, although the year 1397 (starting from 21st March 2018) started with the Supreme Leader’s promise to support domestic production, it has so far been a year of immense suspense and helplessness for many Iranians. The title bestowed by the Supreme Leader, on the other hand, foreshadows another year of sanctions against Iran, which in practice, will mostly affect the ordinary people, rather than the governmental authorities and their policies. The responses that the Iranian governmental officials give to these international threats and sanctions, especially those of the US, not only is highly influential in the economic status of the country and the lives of Iranians in general, but also is effective in the survival of the government through possible future protests.

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